Decentralized finance (DeFi) is an exciting and constantly expanding sector within the blockchain space. DeFi offers a new global financial system that is more accessible and transparent than traditional finance.
As of February 2022, DeFi applications held nearly $100 billion in crypto assets, according to DefiPulse.
Many DeFi protocols have their own cryptocurrencies, which users commonly refer to as DeFi tokens.
In this post, we’ll examine the four examples of popular DeFi projects and the tokens that power them, as well as the top DeFi tokens by market cap listed on Abra.
DeFi Coins and DeFi Tokens
The exact definition of a DeFi project varies. A DeFi token can be any cryptocurrency that powers a decentralized exchange, lending/borrowing protocol, or even a digital advertising platform.
Terms “DeFi coin” and “DeFi token” are sometimes used interchangeably in the crypto space, yet their definitions have important differences.
A DeFi coin runs on its own blockchain. For example, ETH is a DeFi coin and the native currency of the Ethereum blockchain. Users must have ETH to pay network fees for any transaction that takes place on Ethereum.
A DeFi token can also use an existing blockchain rather than its own blockchain. For example, AAVE is an ERC-20 token that uses the Ethereum blockchain. AAVE isn’t required for all transactions on the Ethereum blockchain like ETH. However, AAVE has utility within its own DeFi lending/borrowing protocol.
Here are the four types of DeFi Tokens.
1. Ethereum (ETH) & Protocol Gas Coins
Ethereum is the first blockchain to introduce smart contracts — programming logic that creates automated rules for crypto transactions — resulting in over 200 DeFi applications for lending/borrowing, decentralized trading, and yield farming.
ETH is the native coin of the Ethereum blockchain. Although ETH is technically a coin rather than a token, its utility in the DeFi space is unrivaled. Users need ETH to pay network fees (known as gas fees) for each transaction on the network.
These fees go to validators who verify transactions on the network. Do you want to approve a transaction on your digital wallet for any Ethereum-based DeFi application? You’ll need some ETH to pay for the gas.
The Ethereum network’s lack of scalability — where ETH gas fees are often more expensive than the funds end-users wish to send — currently presents the biggest barrier to adoption.
For this reason, many end-users and developers have begun to adopt other blockchain networks such as Cardano (ADA) and Avalanche (AVAX) — which are more scalable, have lower gas fees, and support similar types of DeFi applications. Nonetheless, the demand for ETH among institutions is on the rise.
2. Aave (AAVE) & Lending/Borrowing Protocols
Aave is a DeFi protocol that allows users to earn and borrow crypto. This DeFi application supports the Ethereum, Avalanche, and Polygon blockchain networks. Users can lend and borrow cryptocurrencies, including DAI, USDC, ETH, AAVE, and MATIC.
Users who hold the AAVE token can vote on important decisions that impact the future of the protocol — called “governance” — through Aave Improvement Proposals (AIPs). For example, AAVE holders determine whether or not to add specific cryptocurrencies to Aave lending/borrowing markets.
Maker (MKR) and Compound (COMP) are two examples of similar, highly popular lending/borrowing DeFi tokens.
3. SushiSwap (SUSHI) & DEXs
SushiSwap is a decentralized exchange (DEX) that runs on the Ethereum blockchain. On the SushiSwap exchange, users trade ETH and a wide range of ERC-20 tokens from their digital wallets.
On SushiSwap, market-makers (a.k.a. liquidity providers) deposit funds into liquidity pools. Each time market-takers (a.k.a. traders) place orders of a specific trading pair (i.e. ETH/DAI), liquidity providers for that trading pair’s liquidity pool earn rewards.
The platform takes a cut from transactions occurring in its liquidity pools. Then, the platform distributes SUSHI tokens as rewards to liquidity providers.
Like the above-mentioned AAVE token, holding SUSHI also entitles users to governance rights. As of early 2022, however, SushiSwap has just one active governance proposal.
4. Basic Attention Token (BAT) & Digital Ad Platforms
The DeFi tokens mentioned above focus primarily on improving or replacing traditional finance apps. But the new world of DeFi offers so much more. Basic Attention Token (BAT) is a perfect example of how DeFi can provide a new model for other economic sectors.
BAT brings a Web3 solution for digital advertising via its Brave — a privacy-centric web browser. According to the project website.
As of February 2022, Brave has 30 million monthly active users, 10 million daily active users, and 1 million verified creators, according to its website. Brave Browser blocks website trackers and third-party cookies by default. Users control what ads and cookies they do and don’t want to block.
Users who opt-in to receive ads from the network’s partners receive BAT tokens in return. Content creators can also enable tips on their social media channels. When someone visits a content creator’s YouTube channel or a Twitter account on Brave browser, they see an option to send BAT tokens to their digital wallet.
Top DeFi Tokens Listed on Abra By Market Cap
Abra lists cryptocurrencies and DeFi tokens based on user demand and market cap. Here are the top DeFi tokens currently listed on the Abra platform that play an important role in the DeFi space.
- Ethereum (ETH) — Protocol Gas Coin
- Cardano (ADA) — Protocol Gas Coin
- Avalanche (AVAX) — Protocol Gas Coin
- Polkadot (DOT) — Protocol Gas Coin
- Polygon (MATIC) — Protocol Gas Coin
- TRON (TRX) — Protocol Gas Coin
- Algorand (ALGO) — Protocol Gas Coin
- EOS (EOS) — Protocol Gas Coin
- Aave (AAVE) — Lending/Borrowing Protocol
- Maker (MKR) — Lending/Borrowing Protocol
- Loopring (LRC) — DEX
- Basic Attention Token (BAT) — Digital Ad Platform
- Compound (COMP) — Lending/Borrowing Protocol
- Bancor (BNT) — Lending/Borrowing Protocol
- Zilliqa (ZIL) — Protocol Gas Coin
- 0x (ZRX) — DEX
- Sushiswap (SUSHI) — DEX
DeFi Tokens — Empowering Web3 Users
DeFi is a fascinating area of blockchain technology that will likely reshape the future of the world for years to come.
The dawn of DeFi has just begun, and the number of applications for DeFi tokens is nearly limitless.
The projects mentioned above and numerous others offer a new decentralized future that can foster financial inclusion for billions of people.
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Abra is a global crypto wealth management platform that supports 110+ cryptocurrencies. Abra supports ETH, SUSHI, AAVE, BAT, and more DeFi tokens.
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